Advisers’, Investors’ Views Diverge — Survey

By Daisy Maxey

Bari Goodman

There are some major gaps between financial advisers’ notions of what investors are thinking and what’s actually on investors’ minds, especially when it comes to investors in pre-Baby-Boom generations, a new survey concludes.

Of the advisers responding to the new online survey, 35% indicated that investors are optimistic about the economy’s prospects for the next five years, but 47% of investors indicated they are optimistic about the economy.

“Advisers are underestimating investors’ optimism about the future of the U.S. economy,” said William Finnegan, senior managing director of retail marketing for Boston-based MFS Investment Management.

MFS conducted the survey through independent research firm, Research Collaborative, from Feb. 7 through Feb. 15. It surveyed 596 individual investors with $100,000 or more in household investable assets and 612 financial advisers, licensed for at least three years with at least $500,000 or more in annual mutual-fund sales.

Advisers are misperceiving not only investors’ motivations, but their sentiments about certain investments, with advisers more bullish on U.S. and foreign equities than investors, it found.

While 72% of adviser respondents indicated they think U.S. equities are an excellent or very good place to invest, only 35% of investor respondents agreed. In addition, while 60% of adviser respondents indicated they think international stocks are an excellent or very good place to invest, just 22% of investor respondents agreed.

Advisers and investors also don’t appear to see eye to eye on risk tolerance, according to the survey. While 75% of adviser respondents indicated they perceive that investors have become much more or somewhat more risk-tolerant in the past 12 months, only 15% of investor respondents indicated they are more willing to take on risk.

Advisers need to reassess how they communicate and the lasting impact of the 2008 downturn, Finnegan said. Advisers tend to think of the great recession as a market event that has passed, but it may mark more of a secular change in the way people are saving and investing, he said.

Advisers can no longer rely on saying, “Based on age, time horizon and risk appetite, here’s where you end up,” Finnegan said. They need to ask more questions, he said. New rules of the road might include not focusing on “growing” assets, not criticizing cash, and making sure that risk is discussed, he said.

Advisers especially appear to be misreading the motivations of investors in Generations X and Y–those under the age of 46 –the survey found. For example, while a whopping 84% of advisers responding indicated they think these investors are investing primarily to grow assets, just 39% of investor respondents in that group indicated that that is their primary goal. In addition, while 9% of advisers responding indicated they think Generation X and Y investors are seeking primarily principal protection, 22% of investor respondents in that group said that is their primary goal.

Matthew Tuttle, chief executive of Tuttle Wealth Management LLC, a White Plains, N.Y., investment adviser, said the disconnect isn’t surprising. The vast majority of advisers assume their products and services are the most important thing for their clients, he said.

Tuttle said he works with clients through their certified public accountants and talks with them via telephone and face to face, but it’s not the number of meetings, but the substance, that matters. For him, “there’s a lot of discussion, a lot of talking not only about clients’ investments, insurance and financial plans, but really much more about their lives,” he said.

Communication should be increased in a down market, Tuttle said. “I told my account managers last week, “I better not get a call from any clients because I want you calling that client first.’”

But Harold Evensky, a financial planner in Coral Gables, Fla., with Evensky & Katz Wealth Management, ascribes the disconnect to general differences in the way advisers and investors view investing.

“The average investor invests based on headlines, which is a dangerous way to invest,” he said. “Advisers are looking long term.”
Investors are often myopic when thinking of risk, thinking only of market volatility, Evensky said. “It doesn’t make sense to put your money in a certificate of deposit if inflation and taxes are going to erode most of that,” he said.

Advisers must work to educate their clients, Evensky said. “We want them on the same side of the table as we are; if we can’t get them there, then we’re not doing our job.”

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